David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. As with many other companies HAND Enterprise Solutions Co., Ltd. (SZSE:300170) makes use of debt. But the more important question is: how much risk is that debt creating?

Why Does Debt Bring Risk?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

How Much Debt Does HAND Enterprise Solutions Carry?

As you can see below, at the end of September 2024, HAND Enterprise Solutions had CN¥483.5m of debt, up from CN¥396.0m a year ago. Click the image for more detail. However, it does have CN¥1.48b in cash offsetting this, leading to net cash of CN¥992.8m.

A Look At HAND Enterprise Solutions' Liabilities

Zooming in on the latest balance sheet data, we can see that HAND Enterprise Solutions had liabilities of CN¥1.02b due within 12 months and liabilities of CN¥116.6m due beyond that. Offsetting this, it had CN¥1.48b in cash and CN¥1.76b in receivables that were due within 12 months. So it actually has CN¥2.10b more liquid assets than total liabilities.

It's good to see that HAND Enterprise Solutions has plenty of liquidity on its balance sheet, suggesting conservative management of liabilities. Because it has plenty of assets, it is unlikely to have trouble with its lenders. Simply put, the fact that HAND Enterprise Solutions has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since HAND Enterprise Solutions will need earnings to service that debt. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

In the last year HAND Enterprise Solutions's revenue was pretty flat, and it made a negative EBIT. While that hardly impresses, its not too bad either.

So How Risky Is HAND Enterprise Solutions?

While HAND Enterprise Solutions lost money on an earnings before interest and tax (EBIT) level, it actually booked a paper profit of CN¥70m. So when you consider it has net cash, along with the statutory profit, the stock probably isn't as risky as it might seem, at least in the short term. We'll feel more comfortable with the stock once EBIT is positive, given the lacklustre revenue growth. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 2 warning signs for HAND Enterprise Solutions you should be aware of.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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